Greek debt looms over EU summit
BRUSSELS: European Union leaders gather on Thursday with the euro under growing pressure as markets wait to see if they will finally come up with concrete measures to help debt-stricken Greece.
Germany is holding out for Greece to seek aid from the International Monetary Fund but others, including the European Central Bank, think any support must come from Europe so as to preserve the credibility of the euro and the eurozone.
The two-day EU summit starts at around 1600 GMT against a backdrop of bickering and contradictory statements that highlight the crunch eurozone problem -- what to do when EU member states break the basic rules on public finances.
Diplomats have been working furiously for days to address conditions imposed by Berlin for it to sign up to any deal, and a last-minute meeting of eurozone leaders could precede the formal summit talks.
"Discussions are progressing but we're not there yet," said one European diplomatic source late on Wednesday.
Greece's debt crisis has dragged down the euro over recent weeks, with the single unit hitting fresh 10-month lows of 1.3283 dollars in Asian trade on Thursday. Related article: IMF aid for Greece 'to hurt the euro'
A ratings downgrade for Portugal on Wednesday over its weak public finances upped the stakes, drawing in another of the weaker eurozone members struggling to cope with the aftermath of the worst global slump since the 1930s.
The IMF has not been involved in planning a financial rescue for a eurozone member state although it has helped EU countries such as Hungary, in joint efforts with Brussels and other institutions.
Italian Finance Minister Giulio Tremonti wants the IMF to be used as an "intermediate" solution, "as a bank and for its know-how but under political management" by Brussels.
But opponents, among them ECB head Jean-Claude Trichet, have argued that IMF intervention would cause serious damage to the eurozone's credibility and further weaken the euro.
A French government source summed up the range of conflicting opinion.
"There are some countries that want no IMF at all; some that would accept technical IMF assistance; some that are ready for a certain amount of IMF financing and others that want the Fund to be the only financial provider."
Burdened by total debt of nearly 300 billion euros (407 billion dollars), Athens has also had to slash a huge public deficit equal to 12.7 percent of economic output, or more than four times the EU limit, triggering strikes and violent protests on its streets.
Greece wants clear cut EU backing so as to help restore investor confidence, which in turn should mean that it could pay lower rates when it raises money on the financial markets -- as it has to do shortly to repay maturing debt.
It currently pays above six percent, more than double what powerhouse Germany has to. In exasperation at what it sees as this untenable position, Athens has repeatedly said it could go to the IMF if the EU does not step up to the plate.
Germany wants to see automatic sanctions triggered whenever eurozone member spending becomes too wayward but the scope of such penalties is under dispute.
They could include the loss of voting rights at European meetings and fines, according to German Finance Minister Wolfgang Schaeuble.
German Chancellor Angela Merkel has even said that she wants the eurozone to be able to expel members who repeatedly breach EU rules on limiting budget deficits to three percent of Gross Domestic Product and total debt to 60 percent.
French Finance Minister Christine Lagarde has taken aim at Germany over competitive disparities within Europe, with Greece accusing German banks of profiting at its expense while German industry benefits from a weaker euro.
EU leaders are scheduled to meet officially on efforts to agree a bloc-wide economic strategy for the coming decade called 'Europe 2020.'
They will also, despite "extreme difficulty," in the words of permanent president Herman Van Rompuy, attempt to agree a deal on Friday to show how Europe intends to re-engage China, India and others in international negotiations over global warming.